CO2 price sensitivity of LNG and pipelines

Abstract

Natural gas is a potential ‘bridge fuel’ to a future low-carbon energy system, raising the question of the environmental footprint of different ways of transporting the gas. This article examines the effects of changes in CO2 prices on the relative cost-efficiency of pipelines and liquefied natural gas (LNG). The analysis shows that pipelines are more cost-efficient for distances below 4726 km at the price of US$ 8.00 per tonne of CO2; above that threshold distance LNG is more cost-efficient. There is an insignificant shift in the break-even distance with a unit change in the price of CO2. That does not imply that pipeline and LNG projects cause similar amounts of carbon emissions, as their total cost functions depend not only on the price of CO2 but also distance, and these two factors can cancel each other out. Thus, it is difficult to generalise across projects about the impact of the cost of CO2 emissions on policy choices between pipeline and LNG infrastructure, because the impact of CO2 prices interacts with the distance of the projects. But for individual projects, scenarios for CO2 price developments should be taken into account.